PEABODY, Mass., - May 1, 2001 - ScanSoft, Inc. (Nasdaq: SSFT), a leading provider of paper-to-digital solutions for desktop, network and corporate workgroups, today announced financial results for the first quarter ended March 31, 2001.

First Quarter Results
ScanSoft's total revenues for the first quarter of 2001 were $12.8 million, an increase of 73 percent over $7.4 million in the same period of 2000. ScanSoft reported income from operations for the first quarter of 2001 of $127,000 versus a loss from operations of $3.7 million in the first quarter of 2000. Net income was a loss of $67,000, or $0.00 per share, compared with a loss of $3.7 million, or $0.12 per share for the first quarter of 2000. Both income from operations and net loss exclude amortization of intangible assets. After including the effect of amortization, ScanSoft reported a net loss of $6.9 million, or $0.15 per share, in the first quarter of 2001 compared with a net loss of $23.9 million, or $0.78 per share, for the first quarter of 2000.

Comments on the First Quarter

"Sales for the first quarter were in line with our expectations and guidance, based upon the relative strength in our OEM and direct revenues," said Richard Palmer, ScanSoft's chief financial officer. "Offsetting this strength, to some extent, was a sluggishness in retail channels both in the U.S. and Europe.

"Our first quarter results for the first time fully reflect the cost synergies from the integration of ScanSoft and Caere," continued Palmer. "Year-over-year gross margins improved from 67 percent to 77 percent. SG&A decreased from 73 percent of total revenue last year to 51 percent in the first quarter of 2001. R&D also decreased year over year, from 44 percent of total revenue in the first quarter of 2000 to 25 percent this year, due to the transfer of operations to Budapest."

First Quarter Operational Highlights

ScanSoft made significant progress towards achieving its 2001 objectives during the three months ended March 31, 2001. Operational highlights for the first quarter included:

Completing 15 OEM agreements, including Brother International Corporation, Microsystems Technology, Vividata, and Canon. During the quarter, ScanSoft also recorded revenue from industry leaders including Deutsche Telekom, Hewlett-Packard, United Parcel Service, Kinko's, Eastman Kodak and Fuji-Xerox. In addition, ScanSoft entered into a partnership with American LegalNet to provide online access to federal and state forms that can be completed on the Web.
Continuing expansion of the Company's sales organization with the addition of 10 account managers.
Concluding a worldwide agreement with GlobalWare Solutions to manufacture and provide fulfillment services for ScanSoft's products. By consolidating its domestic and international product supply chains, this agreement allows ScanSoft to reduce inventories, improve its gross margins and serve its customers more effectively.

"Operational efficiency is the foundation of our 2001 goals," said Mike Tivnan, president and COO of ScanSoft. "We are committed to sustained improvements in productivity throughout the organization, including efforts to streamline our supply chain and upgrade our information systems."

2001 Comments and Guidance

"ScanSoft's first-quarter accomplishments demonstrate progress in meeting our objectives for 2001," said Paul Ricci, chairman and CEO of ScanSoft. "In addition, we recently reached two milestones that expand our international presence and establish a stronger financial footing. First, we completed a multi-million dollar licensing arrangement with Microsoft for Asian OCR technology. Second, we received a $5 million equity investment from our largest institutional shareholder, the State of Wisconsin Investment Board, which strengthens our balance sheet and provides us with increased financial flexibility.

"Through the balance of the year, we will remain focused on our objectives of increasing revenues from our core products, expanding our sales channel, leveraging industry partnerships and striving for productivity through operational efficiency," Ricci continued. "Our opportunities for 2001 are enhanced by the extensive product investments of the past 18 months, which we expect will lead to additional momentum as we introduce major new releases of our OCR, paper management and electronic forms products during the second half of the year.

"Given the unpredictable economic climate, we remain cautious about full-year revenue growth. Consistent with the guidance provided during our fourth-quarter conference call on February 14, we anticipate year-over-year revenue growth of 20 to 25 percent in 2001," continued Ricci. "But in view of our operational improvements to date, we are increasing our full-year year profitability outlook. We now expect to achieve EPS, before amortization, of $0.08 to $0.12, compared with our prior guidance of $0.06 to $0.10.

Investor Call

ScanSoft will hold an investor conference call at 10:00 a.m. (ET) today to discuss the Company's results. To listen to the call, please call (719) 457-2649 approximately 10 minutes prior to the start of the call. For those who are not available to listen to the live conference call, a replay will be available via telephone starting approximately at 2:00 p.m. (ET) May 1st until 11:30 p.m. (ET) on May 5th. The access number for the replay is (888) 203-1112 or (719) 457-0820; confirmation number 721502. The conference call will also be broadcast live over the Internet. Investors interested in listening to the call should log onto the company's Web site at www.scansoft.com at least 10 minutes prior to the broadcast. Investors will also have access to an archived version of the call on the company's Web site.

About ScanSoft, Inc.

Headquartered in Peabody, Mass., with European headquarters in The Netherlands, ScanSoft, Inc. (Nasdaq: SSFT) is a global leader in paper-to-digital solutions for the desktop, network, Internet and mobile environments that enable users to leverage the power of their scanners, digital cameras and other electronic devices. ScanSoft's award-winning product line - OmniPage Pro, TextBridge Pro, PaperPort Deluxe, Pagis Pro, OmniForm, eOmniForm, and numerous software developer's kits - enables users to capture, recognize, edit, manage and share documents and photos electronically by taking advantage of ScanSoft's cutting-edge technology.

ScanSoft has established numerous strategic partnerships with the industry's leading scanner and multifunction vendors to deliver the most comprehensive and cost-effective solutions for its customers. Vendors who have chosen ScanSoft's cutting-edge products and technologies include Brother, Canon, Epson, Fujitsu, Hewlett-Packard, IBM/Lotus, Mustek, Primax, Sharp, Symantec Corporation, Visioneer, Xerox and others. ScanSoft's leading technologies have been licensed by Microsoft for use in Office XP and other future products.

ScanSoft software is sold, marketed and supported worldwide through retail, dealer and OEM channels and the Internet, capturing the small to medium size business and corporate markets. There are more than 8 million registered users of ScanSoft products. ScanSoft can be found on the Web at www.scansoft.com.

Trademark reference: ScanSoft, OmniPage, TextBridge, PaperPort, PaperPort Deluxe, Pagis, OmniForm, eOmniForm, and Developer's Kit 2000 are registered trademarks or trademarks of ScanSoft, Inc., in the United States and/or other countries. All other trademarks and trade names are hereby recognized and may be registered to their respective holders.

Safe Harbor Statement: Except for the historical information contained herein, this press release includes forward-looking statements within the meaning of Section 21(e) of the Securities Exchange Act of 1934. These statements include the Company's expectations: full year revenue increase of 20-25% for 2001; and full year earnings per share, before amortization of intangible results, of $0.08 to $0.12. These statements are based on ScanSoft's current expectations and estimates as to prospective events and circumstances that may or may not be in ScanSoft's control and as to which there can be no firm assurances given. These forward-looking statements are subject to risks and uncertainties and there can be no assurance that any of these forward-looking statements may prove to be correct and actual results may differ materially. These risks and uncertainties include, but are not limited to, our ability to effectively manage diverse and geographically dispersed operations, difficulties with integrating product plans, schedules and resources, difficulties in implementing the planned cost reductions, potential that the information and estimates used to predict the cost savings were not accurate, market acceptance of ScanSoft's products, competitive products, pricing pressures, maintenance of distribution channels, and other risks detailed from time to time in ScanSoft's SEC reports. ScanSoft disclaims any intent or obligation to update these forward-looking statements.

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